Downturn in Indian Sugar Stocks: Know the Reasons Behind Today's Decline

Sugar stocks took a hit on 22 February as the government unveiled a hike in the fair and remunerative price (FRP) of sugarcane for the 2024-25 season. This move saw trading in the red with shares of major players like Balrampur Chini Mills, EID Parry, and Shree Renuka Sugars experiencing declines. The government raised the FRP to ₹340 per quintal up from ₹315 for the previous season marking an 8% increase. This revised FRP will come into effect from 1 October 2024. Balrampur Chini Mills was trading at ₹377 down over 1% reflecting the market's response to the news but recovered later and closed in green.

Impact on Sugar Mills

With this approval sugar mills will now be obligated to pay the increased FRP of ₹340/quintal for sugarcane with a recovery rate of 10.25%. Additionally, the statement highlighted the mechanism wherein farmers will receive additional prices. The government establishes Minimum Support Prices (MSP) for different crops, but for sugarcane, farmers are provided with a Fair and Remunerative Price (FRP) under the Sugarcane (Control) Order of 1966. The Commission of Agricultural Costs and Prices (CACP) suggests the FRP each year which the government then reviews and decides upon.

This year we anticipate a slight decrease in overall sugar production compared to last year due to lower rainfall resulting in fewer sugarcane plantations. However this decline in sugar production isn't causing too much concern because the difference might not be verly high when compared to last year. This is because the crushing season is still underway and hasn't concluded yet so there's still potential for adjustments. This insight comes from Praful Vithalani, Chairman of the All India Sugar Trade Association (AISTA).

New Fair and Remunerative Price (FRP) for sugarcane is expected to bring prosperity to sugarcane farmers. India already pays the highest price for sugarcane globally despite this the government is committed to providing the cheapest sugar to domestic consumers in India. This decision by the Central Government will benefit over 5 crore sugarcane farmers including their families as well as hundreds of thousands of others working in the sugar sector.

Several sugar stocks including Dwarikesh Sugar, Rana Sugars, and Dalmia Bharat witnessed sell offs reflecting market sentiments towards the announcement. Industry experts suggest that the overall sugar production for 2023-24 might faced a decline due to reduced rainfall leading to lesser sugarcane plantations. Shree Renuka Sugars saw its share price dip by around 3% against the previous close following the announcement.

Final Words

The government's decision to raise the FRP of sugarcane for the upcoming season has sparked reactions in the sugar market leading to declines in sugar stocks. While this move aims to support sugarcane farmers its impact on the industry and market dynamics remains to be seen as the season progresses.